Pilot Program Tests Software to Make Ordering Implants More Efficient

U.S. hospitals spend tens of billions of dollars annually on high-tech surgical implants. But the supply chain for the devices is anything but high-tech. And that drives up costs both for hospitals and implant makers.

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Now, some hospitals and medical-device companies are teaming up to modernize and automate the supply chain. They're aiming to bring down costs under pressure from Medicare and private insurers—pressure that is expected to intensify with the continuing implementation of the federal government's health-insurance overhaul this year.

Johnson & Johnson
and
Medtronic Inc.,
the two largest U.S. makers of implantable medical devices, are among the companies collaborating in a pilot program with four hospitals to use an experimental software system developed by Global Healthcare Exchange LLC for the ordering of implants.

Stickers and Faxes

One problem with the traditional ordering system is that much of it is manual. For instance, in many cases, operating-room nurses peel bar-code stickers from empty product boxes during surgeries, paste the stickers onto a clipboard and later type the information into an order form that wends its way through the hospital's administrative channels. Suppliers also do much of the paperwork for orders manually, and complications often arise when someone on either side of the transaction incorrectly records a product code. The transmission of orders and bills is often done by fax.

"Hospitals don't appreciate the cost of these back-office operations, and device makers haven't had to think about it because their profit margins have been so great," says
Steven Chyung,
vice president at Sisters of Charity Leavenworth Health System Inc., a nonprofit based in Denver that is using the new software. But, now, he says, "we're all in a declining reimbursement situation."

The software lets operating-room nurses or other hospital personnel electronically scan the bar codes of surgical implants to generate a purchase order and invoice automatically.

Order Control

Global Healthcare Exchange, the Louisville, Colo., company that developed the software, plans to make it widely available in the second half of this year, at a starting price of $40,000 annually for device makers and about $1,000 for hospitals, says GHX's chief commercial officer,
Derek Smith.

GHX, which was acquired by private-equity firm Thoma Bravo LLC on Feb. 5 for an undisclosed sum, says the software can help hospitals cut costs not only by reducing paperwork but also by giving administrators greater control over which implants are ordered.

Hospitals increasingly negotiate price discounts by contracting with two or three suppliers for particular types of products, like hip implants, instead of five or six. But doctors don't always use the discounted implants, says SCL Health's Mr. Chyung. "The nature of the supply chain today is these reps today open up their trunk, bring in the devices to the doctor, and that's what gets implanted," he says.

By automatically recording the devices used in surgery, the GHX software makes it easier for hospital staff to flag the use of devices that aren't on the list of contractually discounted products, Mr. Chyung says.

Mr. Walker is a Wall Street Journal staff reporter in New York. He can be reached at joseph.walker@wsj.com.

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